A couple of weeks ago, I received an email update from President Obama which discussed his signing of the Executive Order raising the minimum wage to $10.10 an hour for federal contract workers. Within his remarks the President stated his belief that, “It’s the right thing to do”, raising the minimum wage for federal contract workers.
Naturally the President used the news of the Executive Order as a segue to lobby Congress to raise the federal minimum wage from $7.25 to $10.10 an hour for all American workers. He claims raising the minimum wage “would move millions of Americans out of poverty”. In fact, Obama indicated that, “Raising the minimum wage would grow the economy for everyone”. The latter remark is based on his undying Keynesian dogma that more spending is the key to growing the economy.
There’s only one big problem with the President’s position on raising the minimum wage. It’s called the Law of Demand. According to this law of economics, with all other factors being equal, when the price of a good or service increases, demand for that good or service decreases and vice versa.
In the case of minimum wage laws, the service in question is the labor offered by workers. Since minimum wage laws make the price of labor artificially higher the demand for labor decreases per the law of demand. Consequently, some workers will receive pink slips and others will not be hired. Higher unemployment will result.
In fact, a Congressional Budget Office report last week confirmed just that. It indicated that Obama’s proposal to raise the minimum wage from $7.25/hour to $10.25/hour would result in the loss of possibly 1 million jobs.
And there are other reports issued by economists who know the laws of their science, which have found that minimum wage measures cause higher unemployment. It’s also important to understand that that higher unemployment will result in greater income inequality between rich and poor.
At the end of the day, the President’s belief that raising the minimum wage will grow the economy is ridiculous. In the first place, the law of demand tells us that less people will be working. In the second place, the president is assuming that the money businesses earn which does not go to higher wages for their employees, somehow gets sucked down a black hole. Does he not understand that that money could be channeled into productive enterprises like plant expansions, training for employees, and research and development? All are enterprises which ultimately lead to job creation and higher pay for workers. Even my 8th grade economics students understand this. They also understanding that raising the minimum wage is not the right thing to do.